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The Evolution of Online
Casey Shannon
CompSci 49S
February 21, 2008
Basic Idea: Deliver targeted ads to customers who
will then be more apt to purchasing things.
How Do Search Engines Accomplish this?
1. personal characteristics of a web page visitor
known to the party delivering an ad
2. keywords of a search query launched by the user
3. content of a web page visited by the user.
Google’s Marketing Breakthrough
• Why not make advertisers pay for using the
search engine as a marketing medium?
• Advertisers want their company/product to be
the most competitive and popular, therefore
they want their advertising to be the most
competitive and popular.
• How do search engine’s provide the best
search results for the post popular products?
PAY-PER-CLICK Advertising Model
• Targeted advertisement based on two
effectiveness measures:
• 1.) Click-Through Rate (CTR):specifies on how many ads X, out
of the total number of ads Y shown to the visitors, the visitors
actually clicked; in other words, CTR = X/Y. CTR measures how
often visitors click on the ad
• 2.) Conversion Rate: it specifies the percentage of visitors who
took the conversion action. Conversion rate gives a sense of
how often visitors actually act on a given ad, which is a better
measure of ad’s effectiveness than the CTR measure.
PAY-PER-CLICK Advertising Model
The PPC model is widely adopted by Google and
now its two main programs, AdWords and
AdSense, are based on it.
AdWords: a program allowing advertisers to
purchase CPC-based advertising that targets the
ads based on the keywords specified in users’
search queries. An advertiser chooses the
keywords for which the ad will be shown on
Google’s web page.
Uses of AdWords
When a user issues a search query on or a
network partner site, ads for relevant words are
shown along with search results on the site on the
right side of the Web page as “sponsored links” and
also above the main search results.
The ordering of the paid listings on the side of the page
is determined according to the AdRank. Quality is
the “quality” of the keyword being search.
Ad Rank = CPC x QualityScore,
Uses of AdSense
Google AdSense is a program for website owners to
display Google’s ads on their websites and earn
money from Google as a result.
To participate in this program, website publishers
need to register with Google and be accepted
into the program by Google. Also they have to
meet certain criteria set by Google such as
AdSense for Search (AFS) and AdSense for Content
Uses of AdSense
• AdSense for Search (AFS): publishers allow
Google to place its ads on their websites when
the user does keyword-based searches on their
• AdSense for Content (AFC): the system that
automatically delivers targeted ads to the
publisher’s web pages that the user is visiting.
These ads are based on the content of the visited
pages, geographical location and some other
Uses of AdWords and AdSense
Google pays advertisers using the PPC model.
Publishers can see detailed online reports helping the
publishers to track their earnings. These reports
contain several statistics of clicking activities on the
ads displayed on publisher’s website. These statistics
help the publisher to get an idea of how well his or
her website is performing in the AdSense program
and how much the publisher is expected to earn over
Advertising Payment Methods
• CPM – Cost per Mille – an advertiser pays per one thousand impressions of
the ad (“Mille” stands for “thousand” in Latin); an alternative term used in
the industry for this payment model is CPI (Cost per Impression).
• CPC – Cost per Click (a. k. a. Pay per Click or PPC; we will use these terms
interchangeably) – an advertiser pays only when a visitor clicks on the ad,
as is clearly stated in the name of this payment model.
• CPA – Cost per Action – an advertiser only pays when a certain conversion
action takes place, such as a product being purchased, an advertised item
was placed into a shopping cart, or a certain form being filled. This is the
best option for an advertiser to pay for the ads from the advertisers’ point
of view since it gives the
Problems with PAY-PER-CLICK
Conversion Fraud: People clicking on
products/advertisements excessively without
the real intent of actually making any
Recent History of CPC Method
Cost Per Click is the predominant advertising payment
method, made popular by search engines such a Google
and Overture (now part of Yahoo!).
Google introduced CPC AdWords program in 2002.
Combining a particular ad payment method with a
particular targeting method. For Google and Yahoo! the
two main models are the keyword-based PPC and the
content-based PPC models.
Google’s Plan for the Future
• Because there are no guarantees to the
advertiser, they could be losing money on ads
if there is no revenue coming from users
purchasing their products. Thus the Cost Per
Action model is most fair and logical to
• Google is trying to test a CPA payment model
that some consider to be the future of online
advertising payment methods.